A ‘fourth industrial revolution’ is seeing the convergence of biological and technological solutions.

It is estimated that New Zealand’s agricultural sector can feed 40 million people. At a time where we are seeing an ever-increasing number of alternative meat products — such as the plant-based Impossible Burger that claims to “bleed, sear, and taste like meat” (and recently landed Air New Zealand in controversy) — there is an opportunity for New Zealand to export high-quality, high-value food with a focus on provenance to the world.

But as demand for high quality protein increases, the amount and variety of novel foods from culture, insects and plants will grow.

A recent Trans-Tasman Business Circle panel discussed the opportunities and implications emanating from the rapid transformation within the sector. The panel included KPMG’s Global Head of Agribusiness Ian Proudfoot, Fonterra’s Farmer Services Director Matt Bolger, and agribusiness start-up chief executives: Regen’s Bridgit Hawkins and Halter’s Craig Piggott.

Future of food

“We assume that people will eat like us in 20 years’ time,” says Proudfoot. “I can see a world where the only thing we can be certain about is that we will all need sustenance. It is not hard to imagine that sustenance may look incredibly different in terms of how we receive it during the week to how we receive it at the weekend.”

However, he doesn’t believe New Zealand should be setting out to be a commodity supplier to the likes of Impossible Foods.

“Everything we do and how we use our land has got to be focused on us being premium — the deli to the world — the place where people turn to when they want great food.

“There are plenty of people in the world who can afford to pay us for our 40 million people’s worth of food.”

In order to provide premium agricultural products to global consumers, farming systems in New Zealand will need to adapt.

“Regen’s science and insights are future-proofing the agricultural industry; we care about the future of food,” says Hawkins. “It’s going to require new ways of doing things and you need information to support those creating new farming production systems.”

It wasn’t that long ago that sheep were the backbone of the country. No one believed the day would come when jerseys wouldn’t be made from wool — and that day came quickly.

Wool struggled to compete with cotton and synthetics, leading to a decline in sheep numbers and wool prices. Export returns fell 36 per cent between 1985 and 2003, and the sheep industry struggled to recover from that.

Hawkins says this history has helped influence farmers’ psyche. “There is a real sense of ‘there is change, we’ve got to step forward and embrace it,’ as opposed to wait to have it happen to us,” she says.

Technology to boost production

This movement towards new farming systems and demand for new technologies and solutions provides New Zealand with an opportunity to use our deep agricultural knowledge to export more than just our food.

Proudfoot says this “fourth industrial revolution” is seeing the combination of biological and technological solutions for the first time — unlocking the biggest change ever in how we produce food.

It is this revolution that is seeing record levels of investment in the sector — total investment in 2017 reached US$1.5 billion.

Despite increased development in the sector, a major challenge is making those innovations attractive enough for farmers to adopt.

One of the major hurdles in implementing new technologies is that they can be capital intensive. Despite the solutions they provide — and the impact they may have on productivity, financial returns and the environment — the time to adopt them can be notoriously slow.

But this isn’t unique to agriculture. Hawkins uses electric cars to explain this hurdle in adoption: “How many of us have an electric car? Now that’s a technology we all know has some benefit for the environment, but it is expensive — and there are still some questions that remain around the batteries.

“It is a matter of waiting for someone to sort it out for us. One day, the person in our social group who is right into cars will get one. Then we’ll know any issues have been sorted out and we’ll get one. For us, we’re here to support farmers in what is a complex and uncertain time, there’s a greater focus on environmental sustainability now than at any other time in New Zealand’s history.”

For agriculture, ease of use is a further — and considerable — barrier. In today’s age of big data, it is easy to be consumed by noise. The convergence of multiple different technologies and the demands they put on farmers can lead to paralysis. Piggott says that in order to make technology adoption attractive to farmers, it must provide value in a very tangible way.

“We now have the technologies to make a dashboard that contains granular details on every aspect of the farm … but what does a farmer do with that information?,” he asks.

His start-up Halter — backed by a series of Silicon Valley VC’s, including Peter Thiel’s Founders Fund — uses cow collars that allow farmers to guide their herds around the farm, receive alerts when cows are showing signs of poor health or distress, and set virtual fences to keep cows from entering rivers and drains.

Hawkins’ Regen equips farmers with leading-edge technology to support their critical role in New Zealand’s economy. Their technology uses on-farm sensors and other data to provide farmers with daily recommendations around nitrogen application as well as water and effluent irrigation.

She says for Regen, they are at the start of the process and their work will continue to evolve, but the focus from the start has been on what the data means for the farmer, and what decisions they can make better because of it — not what the actual numbers are.

Although Regen collects millions of data points each day, its algorithms use that data to send the farmer a simple alert to say ‘this is what you should do today’.

Innovate for the world, not for Waikato

A recent report by Callaghan Innovation claims New Zealand is seen as one of four locations to watch for agritech solutions, alongside Silicon Valley, Boston, and Amsterdam.

Technologies including the Internet of Things, machine learning, robotics, and drones will help farmers predict pest resurgences, test soil samples, and improve efficiencies in livestock management — reducing and optimising the use of pesticides, fertilisers, animal feed and medication.

The government agency says New Zealand has a unique opportunity to capitalise on its reputation as one of the world’s four key agritech locations.

However, a major challenge for New Zealand agricultural innovation is that most of the world doesn’t farm like we do. Bolger says it is easy to get caught up in the farming systems used in our own backyard, innovating with them in mind — at the expense of capturing the global market.

“If we only seek to serve New Zealand customers, then we innovate for a system that is fairly unique and our potential is limited,” he says.

“If we spend 10 years developing something that works in the Waikato and then take it to Canterbury, it’s going to be really hard for virtually anywhere else in the world that isn’t like those two places. We need to ensure we think with our global customer base in mind.

“That doesn’t mean we can’t dismember our systems to find bits that can be taken offshore. The challenge is being smart so we take the right bits.”

Attracting talent

In order to reach our potential as a breeding ground for agricultural innovation, New Zealand needs to attract the right talent to the industry.

“This is a much bigger issue for the primary sector than just the technology space,” says Proudfoot.

“New Zealand needs to encourage data scientists to come and work with our great biologists — we need to bring data and algorithms together with the agricultural sector that will really enable us to make a difference.”

Piggott — who grew up on a dairy farm, has an engineering degree with first-class honours, and a year’s experience working at Rocket Lab — agrees: “There’s definitely an assumption that if you’re a world leading data scientist or an analytics engineer, you’re straight to Amazon, Google or Facebook. Going to work in a dairy shed is not necessarily top of the list.”

But Bolger says New Zealand’s history of agriculture gives us an advantage over other countries. We already associate science with the primary sector, which allows us to more easily attract top people into great careers in the industry.

“A lot of countries have moved away from agriculture,” he says.

“We have a large and successful agriculture sector that spans everything from the consumer back to the farm in lots of different forms and food products. It’s a sector where you can have a real impact: that’s exciting for millennials and centennials.”

Among the uncertainty of what the evolution of the sector will look like, one certainty is that the world will continue to need food.

If New Zealand can be a provider of premium food — along with innovative technologies to produce more of it — the security in that demand should provide us with a comfortable economic platform into the future.

Tim McCready spoke with visiting Southeast Asian agribusiness leaders to understand what our regions can learn from each other.

Seven Southeast Asian agribusiness entrepreneurs visited New Zealand for a week as part of the Asean Young Business Leaders Initiative. The leaders from across the sector — including producers of cricket protein, strawberries, and mushrooms — visited agribusinesses, met with New Zealand business leaders, and attended Fieldays.

The initiative is run by the Asia New Zealand Foundation on behalf of the Ministry of Foreign Affairs and Trade, with the aim of building business connections and facilitating trade links between the regions.

Herald: What could Southeast Asian agribusiness learn from New Zealand’s agricultural sector?

Sarasit: Farmers here are highly educated and use technology to achieve high productivity and food safety. At the same time, the environment and sustainability are taken into account — even if this increases the cost of production. We need to introduce more sustainable practices in Asean, though we need to be cautious of the cost of those practices. There is an opportunity for New Zealand to develop technologies that are affordable for Asean countries.

Nguyen: The most fascinating thing I will take home from my visit is that although New Zealand agriculture is doing well, the industry continues to look for better efficiency, new value-added products and sustainable measures — you’re always thinking of the next step despite being ahead of the world in many areas. That said, I believe there are further opportunities available to develop products that will ensure New Zealand agricultural products become even higher value.

Ou: The attitude Kiwis have towards agriculture is positive and a good example for Asean countries to learn from — farming is a very respected industry here, which is often not the case in Southeast Asia. We can also learn a lot from Kiwi agribusinesses, particularly how they are not afraid to develop and adopt new technologies. Private businesses and government agencies are working hard to advance the industry as well as protect it.

Phumirat: Asean agribusinesses should be more creative and innovative in their farming practices and encourage farmers to be entrepreneurial. It’s great that in New Zealand entrepreneurs with diverse backgrounds are learning about the farming industry so that they can develop technologies to help — innovation doesn’t always have to originate from the farm.

Herald: What do you think New Zealand could learn from the Asean region?

Sarasit: New Zealand could learn from the diversity of products we have. Asia has so many varieties of finished products that have different flavours, functional ingredients, and health claims. People living in the crowded cities of Asia don’t have a lot of time and are always looking for convenience — such as ready-to-eat and drink products — but they also want good nutrition and a great taste. New Zealand should look to Asean for inspiration to develop more products for local consumers, as well as those offshore.

Ou: With a combined population approaching 650 million, no one can deny that Asean is a goldmine in terms of consumer numbers, but New Zealand seems to be behind when it comes to understanding the region. There is a great opportunity for New Zealand to tap into the Asean market by becoming more involved in the region, establishing collaborations with companies, and strengthening relationships between our respective governments.

Phumirat: New Zealand is very good at producing large quantities of product for exporting, but there is also an opportunity to create niche products for these markets too. There are consumers within the Asean region that are looking for new and exciting products that New Zealand could become competitive in.

Herald: What is the biggest challenge facing agriculture in Southeast Asia?

Nguyen: Vietnam’s population is about 95 million. We are facing a nutrition shortage and food crisis due to inefficient production and a lack of farmers. These two problems are challenging to solve as it requires involvement from both the government and the private sector. We need to make agriculture sexy — including through new technologies and precision agriculture — so that young people are encouraged to farm again.

Ou: The ethics used in farming are alarming. There are too many reported cases where harmful pesticides and chemicals are misused to maximise profit.

Phumirat: The biggest challenge in Southeast Asia is how to introduce more innovation into food production and raise awareness so consumers know what they are eating. We need to find ways to produce safe food that avoids the use of toxic chemicals.

Sarasit: The biggest challenge in Thailand is education. Most of our farmers have a poor understanding of the value chain for their products and have been influenced by politicians. They use single crop farming and a lot of chemicals and pesticides to increase productivity, which has an adverse impact on subsequent crops. Providing farmers with role models and encouraging them to learn will help us mitigate problems. New Zealand is a great role model to learn from.

Herald: How important is sustainability in Southeast Asia?
Sarasit: I have to admit that the sustainability has not been a big deal for many of the developing countries in the Asean region as our priority is on the shortage of food. We do some things for sustainability but these are generally because of regulation and not due to an awareness or demand from consumers.

Nguyen: We have a growing population, and there is a concern that the way we practice agriculture will affect not only our generation but subsequent generations too. We need to take action now, but there are limitations because we don’t have the same level of awareness as you do here and we have a shortage of technology that can provide solutions to the industry. Food safety is of greater concern than sustainability.

Ou: From a Malaysian perspective, sustainability is crucial. Malaysia has one of the oldest rainforests in the world as well as one of the most biodiverse, so maintaining a balance between the environment and using land and forests for agriculture is absolutely vital. Additionally, sustainable practice is important in order to ensure a continuous supply of food that is safe to eat. New Zealand has done a good job by implementing policies and having strict law enforcement that Malaysia can learn from.

Phumirat: In Thailand, most governments and organisations are now aware of the need for sustainability and have put in place policies to address it. There are increasing numbers of farms and businesses that care about climate change, and some consumers are now showing it is important to them by supporting fair-trade farming or local farmers that operate using good agricultural practice principles. Awareness will continue to increase, but we need increased knowledge and technologies that will allow us to produce food in a sustainable way.

 

Nguyen Hong Ngoc Bich, CricketOne, Vietnam:

Nguyen is co-founder of CricketOne, a company producing sustainable and affordable protein from crickets. CricketOne breeds crickets inside 40-foot containers, allowing them to farm all year. They feed the crickets with cassava leftovers, saving on feed costs and waste while shortening production time.

Kamolrat Sarasit, CP Meiji, Thailand:

Sarasit is the dairy science and technology general manager at CP Meiji, a joint venture between Thailand’s largest private company — CP, and Japan’s market leader in pasteurised milk products — Meiji. It is a leading manufacturer of dairy products in Southeast Asia producing a range of yoghurt and milk products.

Walaiporn Phumirat, Backyard Strawberry, Thailand:

Phumirat is founder and CEO of Backyard Strawberry, an organic strawberry producer in Northern Thailand. Using social media to tap in to dreams of rural life by city-dwellers — and educate them on the benefits of organic produce, Backyard Strawberry airfreights strawberries to Bangkok, where customers collect them hours after being picked.

Wei Wen Ou, Siong Hoong Agro, Malaysia:

Ou is the founder and manager of Siong Hoong Agro, a producer of organic mushrooms and organic mushroom-based products. A major focus of Siong Hoong Agro is secondary agriculture waste management and turning spent mushroom substrates into high value organic vermicompost fertiliser.

“The findings of the Australian Royal Commission have been far more material than anticipated,’ say UBS in a research report out this month.

Christopher Simcock, Country Head, UBS New Zealand, says the Australian banks are looking to divest or get back to their core business.

“The regulators have made it very clear they’re not prepared to tolerate any bad behaviour,” says Simcock. “And we’ve seen through many, many cycles, that these huge organisations, these huge conglomerates, are very difficult to control.

You might have the best systems in the world but if you’ve got 150,000 employees doing 57 different things in 74 different countries, it’s tough being a board member presiding over that.

“Whereas if you’ve got that number of staff in that many countries doing three things you’ll probably sleep better in the evenings.”

Executive Director of Investment Banking Andrew Fredericks points to UBS analysis suggesting one risk is the Royal Commission being a catalyst for a credit crash in Australia.

“When you look at some of the work done in that sector on interest only loans, those changes got made a year ago, we think it’s 2019, 2020 when that bow-wave really hits the consumption side, when people have to move to principal as well as interest only,” he says.

The concern in Australia is that the response by banks to apply more stringent standards in respect of customers’ income, expenses, assets and liabilities could lead to a sharp reduction in credit availability. This could have implications on house prices, consumption and growth.

Despite claims that New Zealand banks operate under a different regulatory and governance framework, there are concerns these same implications could spill over to New Zealand’s Australian-owned banks.

This concern prompted the FMA and RBNZ to meet with the chief executives of New Zealand’s registered banks. Earlier this month they issued an open letter to banks requiring written responses by May 18 that detail what actions have been taken to mitigate the risk of misconduct.

The letter says: “We expect you to show us what you have done in order to be comfortable that there are no material conduct issues within your business. We anticipate that you will have undertaken an exercise of that nature after our Conduct Guide and may be extending or enhancing that work in response to issues raised at the Royal Commission or more broadly as a result of that inquiry.”

“I don’t know how the banks are going to respond to that letter from the FMA and RBNZ, but they were given three weeks to do it, and I would have thought they are going to be very cautious on credit availability,” says Fredericks.

David Lane, UBS’s Head of NZ Equities says executives and boards of local banks have been quite careful.

“They started putting in place — probably prior to the macroprudential requirements — cleaning up their balance sheets. We haven’t seen the banks take any major hits on construction or apartment buildings — it’s been the promoters that have worn it. Having the pre-sale requirements and the bonds, etc, the banks have been quite careful.”

The research report from UBS says: “It is impossible to be definitive about the possible flow-on effects from the Australian Royal Commission to New Zealand, other than to say, from an economic perspective, they can only be negative risks. Moreover, the greater the fallout in Australia, the greater the downside risks (direct and indirect) will be for New Zealand.”

New Zealand shares some of the same concerning features as Australia on household debt, including the escalation in household debt since the GFC, the extent of debt-to-income ratios above 6, and the associated rise in house prices.

If the same tightening of lending standards transfers across to New Zealand, it would likely have an influence on the availability of housing credit in New Zealand.

The earlier UBS report out of Australia said that the country had a world record house price boom of 6556 per cent over the past 55 years, which went longer and higher than many investors thought possible.

UBS analysts say Australian lending standards in recent years have been so lax that three-quarters of loans have simply assumed household living expenses around the household expenditure “Basic” benchmark of A$32,000 pa (“remarkably, below the Australian Old Age Pension”).

To comply with “Responsible Lending Laws” banks will lift due diligence amid the “macroprudential phase 3” focused on regulation and lending standards.

UBS analysts say the impact may be that mortgage borrowing limits in Australia may drop by 30 per cent — 40 per cent.

In New Zealand there is a risk a spillover from the Australian inquiry could compound the headwinds already mounting for the housing market. Other potential dampening effects on housing under way by the Labour-led Government include policies on immigration, the extended bright line test, a ban on foreign buyers, KiwiBuild’s aim to deliver 100,000 houses over 10 years, and indications that today’s Budget will signal an end to negative gearing.

Tencent is probably most well-known around the world for WeChat — which has transitioned from being an instant messaging system to more of an ecosystem and way of life in China. WeChat is used for everything from chat and games to paying bills, ordering a taxi, booking doctor’s appointments, and filing police reports.

Government policy dictates WeChat users register with their real names, and a pilot programme by WeChat has seen virtual ID cards launched through the platform, which serve the same purpose as traditional state-issued ID cards.

The platform has more than one billion monthly active users; 400 million use its payment system Tenpay (which includes WeChat Pay). Alibaba’s Alipay, run by Ant Financial, has 520 million users.

The transaction figures are astounding. Between those two major players, they control nine out of every 10 renminbi of the US$5.5 trillion (NZ$7.6t) spent by Chinese consumers on mobile payment platforms — and both have lofty ambitions to move beyond China.

China’s payment companies have begun expanding into global markets. Alipay and TenPay chose to first introduce their payment facilities in popular destinations for China’s increasingly affluent and digital-savvy travellers — South Korea, Japan, and Thailand.

The World Tourism Organisation estimates Chinese tourists spent US$261b abroad in 2016. Retailers and service providers taking up the payment systems are hoping to entice Chinese shoppers to spend their renminbi with them.

Finland is an increasingly popular destination for Chinese tourists, and became the first country to offer Chinese tourists an entirely cashless experience when they visit.

Partnering with Finnish payment platform ePassi and tourism group Visit Finland, Alipay introduced the “Smart Travel” initiative to connect local businesses with Chinese travellers at every point during their visit. Shopping, services, activities and experiences can be paid for using Alipay — even receiving duty-free refunds at the airport.

Last year Christchurch Airport signed a memorandum of understanding with Alibaba, agreeing to promote Alipay in the South Island, and in the past month Smartpay announced a partnership with Alipay that will see Alipay capabilities rolled out to Eftpos and credit card terminals for up to 25,000 merchants.

Alipay Australia New Zealand’s managing director George Lawson says Alibaba now partners with approximately 2000 merchants here and expects this to grow dramatically.

“The recent Smartpay announcement will drive a lot of this growth as it gives Alipay access to tens of thousands of merchants with one software update. This is very exciting as it makes it much easier to accept Alipay with existing terminals.”

Increased use of Alipay in New Zealand means Chinese visitors can more easily find, rate, and pay for goods and services using their mobile phone app, providing a platform for Kiwi businesses to promote themselves and form a relationship with tourists before, during, and after they visit.

More than 400,000 Chinese visit New Zealand each year, and spend around $1.7b per year. MBIE estimates this figure will grow to $4.3b by 2023, and as independent travel grows in popularity the scale of the opportunity for business is clear.

Christchurch Airport’s Chief Aeronautical and Commercial Offer Justin Watson believes making the payment process easy and familiar will benefit businesses that take up the technology.

“The Chinese use Alipay more than credit cards,” he says. “They trust it and know how it works; our Chinese guests are more likely to spend with a business that offers Alipay than one that doesn’t.”

Lawson agrees: “The Alipay brand is a beacon for Chinese tourists as they are familiar with it, receive the best exchange rates and it reduces anxiety associated with dealing with another currency. It also breaks down language barriers.”

Though these payment services are initially targeting Chinese tourists, they are hoping to rub off on China’s growing diaspora — and ultimately more widely — encouraging locals to make use of mobile payments.

To support this ambitious growth strategy, Alibaba and Tencent are quickly expanding their presence outside China through partnerships and investments in global brands and foreign payment networks.

Tencent has acquired a stake in over 15 foreign companies at a cost of US$4.3b, including 10 per cent in Snap (the parent company of social media craze Snapchat) and 5 per cent in Telsa.

Tencent’s music unit recently exchanged equity stakes of just under 10 percent with Spotify.

Alibaba has also been investing globally over the past few years, including Southeast Asian e-commerce company Lazada, India’s largest online food and grocery store BigBasket, and Indian payment app Paytm.

Analysts say these investments are made for a variety of reasons: to help Alibaba and Tencent capture data and gain intel from market leaders, to export what they have learned from their operations in China to other countries, and in some cases to encourage customers in global markets to use their online payment system, cloud services, and other infrastructure.

Cracking the global payment system will lay the foundation to provide other services, including insurance, loans, and investment offerings.

Despite this growth in acquisitions, the US is starting to hit back at China’s expansion.

Ant Financial made a US$1.2b move to acquire MoneyGram — an American money transfer company with around 350,000 remittance locations in over 200 countries.
This takeover was under a year-long regulatory review as questions were raised over customer data and privacy.

In January, the US Committee on Foreign Investment — a multi-agency government panel — scuppered the deal over national security concerns.

This has been the most high-profile Chinese deal to be axed by the Trump administration to date — occurring despite Alibaba’s founder and executive chairman Jack Ma wooing then-US President-elect Donald Trump prior to his inauguration with a promise to bring a million jobs to the US.

Piyush Gupta, chief executive of Singapore’s DBS bank, also recognises Alibaba and Tencent as among the bank’s biggest competitors and considers their rapid rise in China a salient reminder of the disruption that can occur if banks don’t react swiftly to innovation.

Gupta told McKinsey that it is not enough to apply digital “lipstick”.

“In 2013, the DBS board therefore took the view that the future for us and for our industry would have to be digital. We felt that if we didn’t lead the charge, frankly, we might die,” he says.

DBS recently launched its mobile-only bank to take on China’s e-banking giants. The bank is using the service as a strategic tool to strengthen its presence in emerging Asean markets — where the World Bank estimates 264 million people do not have access to banking facilities, and just 30 per cent of adults have debit cards.

The opportunity is significant, and the race to cash in is well and truly under way.